2008 was undoubtedly the most bizarre year of my supply chain career, which dates back to 1990 or so.

From the cost madness of the first half of the year to the economic crisis of the last quarter, combined with a presidential election in the US and the usual turmoil around the globe, there was certainly no lack of news to keep us occupied.

2008 was epitomized during the CSCMP annual conference in Denver in early October, where as we enjoyed generally excellent supply chain presentations inside the convention center, outside the financial crisis was beginning with a vengeance, with the stock market dropping 500 points or more it seemed every day of the show. Part of you felt like racing back and trying to save what was left of your 401k.

I reviewed our coverage over the past year, along with that from some other sources, and made my picks for the top 10 supply chain and logistics news stories of 2008. In a general sense, the economy was the big thing, of course, but you don’t need me to tell you that, so it’s not on the list.

Gilmore Says:

“In a stunning move, Dell first announced in April that it was largely abandoning its legendary make-to-order supply chain model, as it was too costly (when we all thought it gave it a competitive advantage)."

1. Wildly Gyrating Oil and Commodity Prices: Through the first half of the year, oil and virtually all commodity prices were skyrocketing, sending shock waves throughout the supply chain and pounding the bottom lines of many corporations. In spring of 2008, iron ore companies were raising prices to steel makers by something like 75%. Unbelievable. Oil of course peaked in July at almost $150 per barrel, amid predictions it was headed to $200, and who doubted that at the time? By year’s end, oil was at or below $40 per barrel, and most commodity prices had collapsed.

Good news for many, in a sense, though deflation in general is not a good thing. However, pricing sanity certainly is, and we were clearly in insane territory for awhile. Who can plan in this kind of environment? Supply chain flexibility is key.

2. DHL US Goes Bust: Despite denying the rumors for awhile, parent Deutsche Post first announced in May it was significantly revamping its US parcel network, including outsourcing airlift to UPS. Then in November, it announced it was leaving the US market entirely, except for support for international shipments, by the end of January, 2009. A huge hub in Wilmington, OH shuttered. If you aren’t a big parcel shipper this doesn’t affect you much, but the market needs a third parcel carrier, and the whole DHL saga seems fraught with strategic mistakes.

3. Problems with the Food Supply Chain: First, we had the infamous salsa panic in the US, in which salmonella in some fresh salsas led to the recall of tens of millions of dollars of tomatoes, only to later find it probably wasn’t the tomatoes at all. (The latest, but still somewhat unproven, culprit is said to be bad jalapeno peppers.) Then there was the serious issue of tainted Chinese milk, which was primarily the result of human error/greed, which killed a few and sickened many more. The first incident raised proper questions about why we can’t seem to protect the US food supply chain better, and why available track and trace technologies are not widely deployed. The second raised still more concerns about the safety of Chinese products, and gave China a real and deserved black eye.

4. New Administration may Bring Changes to the Supply Chain: The election of Barack Obama and a more heavily Democratic Congress had the potential to result in a number of changes that could affect supply chains. That would include: a “card check” law for unionization efforts; potential changes/reversal of some aspects of current free trade agreements; and greater support for logistics infrastructure improvements. With the current economic situation, some of these plans may be delayed, except for infrastructure spending, which will accelerate, perhaps dramatically, as a stimulus. The question: what really needs to be done?

5. Carriers Leaving Market in Droves: Rising fuel prices and falling volumes caused a significant number of truckload carriers to leave the market in 2008. In the Spring, there was actually a call for a nationwide independent truckers strike to protest their miserable lot in life, but it never really came together. The number of carriers leaving the market actually caused many shippers to see tightening capacity in Q2 and Q3, even as volumes dropped, according to the Wolfe Research quarterly shippers' survey. When the recession ends, as they all do, before long, we may find we really miss many of those departed carriers.

6. RFID Goes Sideways: More of a trend than an actual news story, but growing interest in RFID for asset tracking and closed loop manufacturing systems was balanced in a negative way by the almost implosion of the interest in RFID for the consumer goods-to-retail supply chain. The news about Wal-Mart’s Sam’s Club compliance mandate is that there is almost no news, and hardly a peep outside of that, versus 2003-2006 when Wal-Mart and RFID were in the news literally almost daily. There is some action in apparel retail item level tracking, however, and what looks like a very solid value prop.

7. Supply Chain Icon Dell Reverses Course: In a stunning move, Dell first announced in April that it was largely abandoning its legendary make-to-order supply chain model, as it was too costly (when we all thought it gave it a competitive advantage) and as part of a strategy to get into the retail market. It later announced even further plans to outsource manufacturing. Amid additional business troubles since then, despite Michael Dell’s return as CEO, Dell is now just another company with a supply chain, and nothing special any more. That is quite a change.

8. i2 is Gone…No, Wait a Minute: We received a tremendous amount of Feedback on our piece on “End of a Supply Chain Software Era,” which looked back fondly on the incredibly interesting history of i2 Technologies, provider of supply chain software to hundreds of companies, as it announced it was being acquired by JDA Software. Most agreed it really did end an era. But hold on! As with many other merger deals, the financial crisis goofed this one up too, and i2 is still i2. Amazing.

9. Global Security Requirement Changes: The US Customs and Border Protection (CBP) agency finalized plans for the so-called “10+2” rule, which requires importers or their designated agents to file “10” types of data elements 24 hours prior to vessel lading overseas. The vessel operator will have to submit the other “2” data elements 48 hours from the vessel departure from the foreign port, adding burdens and new systems requirements for importers. Meanwhile, in the face of strong protests from shippers and other governments, the Department of Homeland Security announced in September that it was backing off from the legislated requirement for 100% container scanning at foreign ports for goods bound for the US set for 2012, in part because in reality it just couldn’t be done.

10. Re-Focus on the “Product Economy”: There is a growing understanding that the US was too focused for many years on financial services and related activities. As the financial crisis hit and took down the economy with it, there have been a growing number of calls, from this column to FedEx CEO Fred Smith to various legislators, that we need to rethink where and how the US competes (the same is happening in the UK). Will anything really happen? Hard to say, but I think the answer will be Yes.

So, there’s my top 10 list for 2008. It was certainly a year to remember – and forget.

What do you think were the top supply chain and logistics stories of 2008? What would you add or subtract from Gilmore’s list? Let us know your thoughts at the Feedback button below.

A strong start for the New Year on Wall Street brought good results for the Supply Chain and Logistics stock index. In the software group, i2 climbed 11.6%, followed by Logility (up 10.8%). In the hardware group, both Zebra and Intermec had a good week (up 9.7% and 3.5%, respectively). In the transportation and logistics group, Yellow Roadway soared 31.5%. Others within the group with double-digit gains were Ryder (up 12.3%) and Norfolk Southern (up 10.6%).

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We received a lot of letters on our First Thoughts piece on “Back to the Product Economy?” That includes our Feedback of the Week from John A. Mariano of Fellowes, who receives a $20 Fuel Card. We also are printing letters on that topic from Nick Turner of Sterling Commerce and Steve Dickerson of CAMotion. Maybe a few more next week. We also include another excellent letter on Supply Chain, AIG and What’s Next, from Herb Shields.

Feedback on the Week – On Back to the Product Economy:

STATE OF THE STATE

Over the last 20 plus years, we have all witnessed and, in most cases, been part of a dramatic shift in manufacturing to low labor rate countries. Some of us had to transition from managing a manufacturing operation to becoming adept at sourcing and purchasing. We also had to learn strange new things like inco terms, ocean freight, duties, origin fees, landed cost, security programs; in short, we had to become sophisticated global guys, and speak and be totally conversant in global trade.

Along the way, we were so busy in our day-to-day sourcing and getting on airplanes, we did not notice and paid little attention to the fact that we were changing the game forever. That game is our ability to manufacture. This shift from manufacturing is, and remains, nothing short of how well we as people and a country fare in the next decade and beyond.

We were all told and were led to believe that this paradigm shift was good for us, the economy and the country. Heck, no one wanted to stand in the path of progress or be labeled as a protectionist, not be competitive, or worse, be out of job. Well now, flash forward to present day. Do you like what is happening and do you think we may have sacrificed long-term gain for short-term profits? Let me define long-term gain. Our ability to truly add value - take something from nothing and make it into a product and do it so it employs your neighbors, not someone in Asia, or India. Oh yeah, that sounds steamy – but it is looking out for the country by looking out for the people.

We Americans, do not, in my opinion, do a good job in looking out for our interests. We need to start to do just that – look out for one another and have government that is a true representation of what it is we want/need and must have. As John Kennedy stated in Profiles in Courage, if we do not participate in government, then we get the government we deserve. I guess lots of us have not participated, because we are sure seeing what happens when we are not engaged in the process.

Currently, we appear to have politicians and few leaders and that will hamper any society. My message is to get involved. If you do not like the fact that the economy is on the brink- then let your representatives know. Hold them accountable – where and what is the plan, where is the National Industrial policy, where is the National Trade policy and the National Infrastructure policy, Education, Health on and on? At the moment the only thing we have to fear is ourselves if we continue to be passive.

John A. Mariano
Fellowes

More On Back to the Product Economy:

One long-term certainty is that the standard of living in the US is determined entirely by what is produced domestically in terms of goods and services. That is not a financial statement but simply an engineering conservation statement.

Thus, the only thing that is important is that a high fraction of the population is working, and working with high productivity. In many cases that means a lot of automation enabled by the computer/communications revolution.

Steve Dickerson, CTO
CAMotion, Inc.

Interesting stuff. But the current gloom seems rooted in a USA (and to some extent European) property bubble bursting. This has little to do with the relative cost of manufacturing in different parts of the world. The huge budget deficit (caused by tax cutting during an expensive war amongst other things) makes a response to the crisis difficult and potentially very inflationary, especially if we cannot borrow abroad to finance it.

Let us not forget that the purchase of low-cost manufactured items from Asia has allowed both our and the Asian workers’ standard of living to grow. The issue is not where things are made, but how we can over the LONG TERM balance the “Balance of Payments” along with associated capital flows and borrowings. Economists have been predicting the collapse of the USA or the fall of the Dollar or hyper inflation or other items of doom for several years and this has not happened. It may still happen, but levels of budget and other deficits have risen way above the levels commentators described as “unsustainable” 5 years or more ago with no side effects to show for it yet.

By the way, if it is uncompetitive to manufacture in the USA, why do Honda, Toyota, Nissan, Hyundai and others continue to seem very keen to build plants here? Same applies to the UK - when Rover finally went to the wall, it was touted as the end of British auto manufacturing – those commentators seemed ignorant of the fact that Honda, Toyota and Nissan have plants there.

I agree with your article that manufacturing in the USA is doing very well in what has been for a long time now very difficult and very competitive circumstances. Manufacturers have done this by increasing productivity and shedding jobs – yet the US economy has until very recently been adding even more jobs. These new jobs may, however, have different skill levels and different pay rates and be in different parts of the USA. Overall the economy does OK, for individual people and families, the effects can be very hard. However, people need to think long and hard about their education and their skills and where in the country they live. If all the jobs have gone from your town and the local leaders cannot attract replacement jobs, then for Pete’s sake, move! I met a warehouse supervisor who is in class at night learning IT and business skills because he feels the company he works for is going to move the DC and he wants better and more opportunities if and when that happens. More people need to think that way. Who is and will be competing for your job? Is it an illegal immigrant; is it an Indian or Chinese working offshore? If we can centralize transport planning for a US 3PL at one HQ in the USA, why can’t we do it in India?

Finally – at what point will business realize that raw labor cost is not everything. You may pay 1/5 for the labor, but organizational effectiveness may be hampered so much by time zone, communication and cultural issues that these savings get wiped out.

I agree with Dan that supply chain visibility and intelligence become even more important in times of significant change. There is no question that oil prices will keep fluctuating, and I agree that the trend is upward until we develop a real energy policy that leads to less dependence on oil.

I think that supply chain managers need to keep the key goals in mind - total cost management, great customer service, and outstanding quality. Oil prices, transportation costs, inventories, etc., need to be managed in the context of the enterprises overall supply chain objectives. This should result in different actions from one company to another. We have all seen examples where companies have followed the lead of what is "in fashion" from a supply chain perspective and ended up reversing the course.

Herb Shields, CMC
HCS Consulting

SUPPLY CHAIN TRIVIA

Q.
What were the top five countries in the World Bank's 2007 report on logistics competitiveness?